Kotak sees Zomato shares rallying up to 26%, maintains buy rating

Driven by Zomato’s resilient food delivery margins and potential long-term profitability in its Blinkit business- despite near-term pressures, Kotak Institutional Equities on Thursday reaffirmed its "buy" rating on Zomato, maintaining its target price at Rs 275, implying a potential upside of nearly 26% from the stock’s current level.

Zomato shares were trading 1.8% lower at Rs 218.60 on the BSE.

Kotak believes the market is "overly pessimistic" about Blinkit's margins, with the current stock price reflecting a sub-2% EBITDA margin in perpetuity. While the near-term outlook remains pressured by Blinkit’s aggressive store expansion—around 250 new dark stores per quarter through 2026—and heightened competition, Kotak said it expects an improvement in profitability from late FY2026.


Zomato’s core food delivery business remains strong, driven by platform fees and a higher customer take rate, Kotak noted.

The brokerage said it expects food delivery margins to "remain healthy in the near term" and estimates EBITDA as a percentage of gross order value (GOV) to reach 5.2% by FY2027, in line with Zomato’s guidance of around 5%.

Blinkit's contribution to Zomato’s profitability may improve once a higher proportion of its stores mature. "All else equal, we believe Blinkit’s EBITDA margins may show improvement only when the proportion of older stores in the overall store count begins to increase," the brokerage said.

Kotak said that its estimates that the proportion of newer stores (less than a year old) will peak by Q4 FY2025 or Q1 FY2026, and will remain at a "reasonably high 50%" by Q3 FY2026. However, if store expansion slows from Q4 FY2026 onward, Kotak said it expects Blinkit’s EBITDA margins to trend higher.

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At the current market price, Kotak noted that the market is factoring in an "extremely pessimistic" outlook for Blinkit's profitability. "The CMP today is baking in an about 10% lower EBITDA for food delivery versus our estimates and a poor 1.6% EBITDA margin for Blinkit in perpetuity," the brokerage said.

Kotak conceded that predicting Blinkit’s exact margin trajectory remains challenging but noted that "a sub-2% margin in perpetuity is extremely pessimistic, especially when older store cohorts are witnessing decent 5-6% store-level margins."

While Kotak said it expects near-term earnings to be subdued due to Blinkit's expansion and potential investments in Zomato’s new app, District, it remains positive on the company’s long-term prospects. "We remain sanguine about the longer-term prospects of Blinkit and food delivery businesses," the brokerage said, though it flagged increasing competitive intensity as a key risk to its call.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)